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Rigidity, Dispersion and Discreteness in Chain Prices

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Author Info
Benjamin Eden () (Department of Economics, Vanderbilt University)
Matthew Jaremski () (Department of Economics, Vanderbilt University)

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Abstract

This paper studies price setting within a chain of grocery stores, using a scanner database that contains observations of retail prices for 435 products within 75 stores over 121 weeks. We find price dispersion within the chain. Stores differentiate themselves by the prices of relatively few items. Typically most prices in the store are at the mode of the cross sectional price distribution, some are above the mode and some are below the mode. The probability of a price change is 3.6% when the price is at the mode and 76.2% when the price is not at the mode. We explain the apparent attraction to the mode in terms of a model in which price discreteness plays an important role but there is no inertia. We also find that the probability of a price change is higher when the deviation from the mean of the cross sectional price distribution is large. But unlike conventional wisdom, the probability of a price change is higher for young prices.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu09-w03R.pdf
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File Function: Revised version, 2009
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0903.

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Date of creation: Mar 2009
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Handle: RePEc:van:wpaper:0903

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Related research
Keywords: Price discreteness; price dispersion; price changes substitution; the Friedman rule; seigniorage;

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Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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This page was last updated on 2009-10-18.

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